The basic principle that explains the demand for a factor of production is the
A)principle of marginal productivity.
B)Hotelling principle.
C)principle of opportunity cost.
D)Ramsey pricing principle.

Question

Quizplus · Accepted Answer

The principle of marginal productivity states that a firm will demand a factor of production up to the point where the marginal revenue product (MRP) equals the price of the factor. This principle explains why firms hire workers or purchase other factors of production - they will only do so if the additional output produced by that factor is worth more than the cost of the factor itself.

The Basic Principle That Explains the Demand for a Factor